Question

What is the fundamental concept behind Modern Portfolio Theory (MPT)?

a.

Investing in assets individually based on their own merits

b.

Maximizing the expected return of each asset in the portfolio

c.

Considering how each asset changes in price relative to every other asset

d.

Selecting assets solely based on their riskiness

Posted under IC 14 Regulations of Insurance Business

Answer: (c).Considering how each asset changes in price relative to every other asset Explanation:The fundamental concept behind Modern Portfolio Theory (MPT) is that the assets in an investment portfolio should not be selected individually based on their own merits. Instead, it is crucial to consider how each asset changes in price relative to how every other asset in the portfolio changes in price. This approach helps investors manage risk and optimize returns by diversifying their portfolios across different assets.

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